SBA Business Loan and how to apply?

13 Jul 2020

Business means to make money from the money by utilizing the skills. But this is not enough, to run a business you require the setup cost, marketing, and research cost and much more and to fulfill the same you will rush to the nearest lender to get the loan at any interest. Wait, as there is one best option which will eradicate your financial crunch, i.e. Small Business Administration and in short SBA. The firm has certified lenders who offer the business loan to the borrower at a minimal interest rate. SBA acts as a key between the lender and the borrower and also ensures the lenders that their loan amount is safe. For the smooth loan operation, the SBA set up the guideline for the borrower and regularly amends the same. There are various types of loans listed in the SBA and the same are provided below which will help you to select the one which fulfills your requirement.

What are the types of SBA Loan?

7(a) Loan Program

In this program, the borrower can avail the loan up to $5 million and can use the same amount in working capital, purchase of equipment and in the expansion of a business. To avail such loan the borrower can move to the bank or specialized lenders.

504 Loan Program

In this program also, the borrower can avail the loan up to $5 million to purchase the land or equipment. But the key difference is the lender, as in the earlier case the lender can be a bank or specialized one but here, the lender will be solely a private one.

Microloan

The name itself denotes that the loan amount will be comparatively lower than the above two and the maximum loan amount goes to $50,000 and the amount can be used in the working capital, purchase of the equipment and to start up a business. The borrower can rush to the non-profit community-based lender to avail the business loan.

Disaster Loan

This loan is used to overcome from the loss of the business due to natural calamity and the borrower can avail the loan up to $2 million. This loan is processed by the SBA and not by other lender or the bank.

Now, you are familiar with the SBA and the types of loan. So, it is time to know about the interest rate against the loan provided by the SBA and for your convenience, the details are listed below.

What are the interest rates charged by the lender under SBA against the business loan?

As per 7(a) loan program, the interest rate depends upon the loan amount and the tenure and as per the same, the categories of the interest rates are listed below.

  • If your loan amount is $25,000 or less and payment tenure is below 7 years, then interest rate charged against the loan will be 9.75%. However, if the tenure is above 7 years then the interest rate will be 10.25%.
  • If your loan amount lies in the range of $25,001 to $50,000 and the tenure is below 7 years, then the interest rate will be 8.75%. But, the interest rate will be higher if the tenure is above 7 years and it will be 9.25%.
  • More the loan amount less will be the interest rate and this applies in SBA loan program too. If your loan amount is more than $50,000 and the payment tenure is below 7 years, then the interest rate will be 7.75% and it will bit increase if the tenure is above 7 years and in this case, the rate will be 8.25%.

What is the SBA Loan Collateral Process?

This was all about the interest rate against the business loan provided by the lenders listed in the SBA. But you must be aware that the loan without any collateral is not possible and here also you will have to provide the collateral. But not to the lender as the SBA will act as a guarantor on your behalf and the guarantee amount will be $3.75 million. So, it is a positive sign from the SBA and this reduces the stress from the borrower, but don’t think you have escaped as the SBA need the personal guarantee with 20% ownership stake and you must hold the top position in the firm. It means, if you become a defaulter and fails to repay the loan, then SBA will seize your assets to recover the loan amount.

After knowing about the SBA, loan types, interest rate, and collateral, now it’s time to know about the documents required for the business loan. The list of documents is mentioned below which will help you to avail the loan in an efficient manner.

What are the documents required to avail the SBA Loan?

  • Duly filled Application form
  • Bank account statement
  • Income tax returns of the past 3 years
  • Business License
  • A copy of previous loan history

Now you are well versed with all the segments of SBA, so it’s time to know about the application process. The process is simple and your task is to select the correct lender who can offer the loan. The detailed process is mentioned below.

How to apply for the SBA business loan?

If you are looking for a traditional method, then move to the SBA district office with the relevant documents. Now, ask the SBA’s representative for the lender and then they will scrutinize your application form and thereafter will match with the appropriate lenders which will suit your profile. After selecting the lender, complete the document part to avail the loan.  

That’s it; now boost y our business with the SBA loan and make sure to repay the loan amount in a regular interval of time.